There are many ways in which to manage and benefit from financial assets. However, there are specific circumstances in which a simple savings account is insufficient. It’s at times like this when people look to financial trusts.
What is a Trust?
A trust is a method for managing various financial assets, for example money, property, land or investments. It involves a legal relationship between the settlor (the person who provides the assets) and the trustee (the person or people who manage the assets) for the beneficiary. There are many ways in which a trust can operate but usually it involves some sort of transfer of wealth, with preconditions attached. For example, a parent creating a trust for their child, which is only accessible after they’ve turned 18.
There are different types of trusts available, to suit different circumstances.
Why invest in a trust?
There are many benefits to investing within a trust. Often, a third-party trustee is employed in order to protect the beneficiary’s best interests, either because they’re underage or somehow mentally impaired. It can also be a method of protecting the assets themselves, for example a family property, which can provide a passive income but the trustees prevent the beneficiary from selling the property. Of course, trusts also provide protection should the beneficiary face issues such as bankruptcy or divorce.
Interestingly, an increasingly popular use for trusts involves the settlor and beneficiary being the same person. As the population is living longer and the care sector continues to struggle, more and more people are worried about their advanced years. Therefore, they’re investing in a trust now, to ensure that they are protected in later years.
Setting up a Trust
Setting up a trust involves the choosing of trustees and agreeing upon a deed. This deed would be a legal contract, detailing the trustees, beneficiaries, assets and outlining how the trust should be run. Anyone can be appointed as a trustee and therefore, many people will choose a friend or family member. However, managing a trust can be complicated, especially when it comes to taxation, therefore many people opt for a professional trustee, such as a solicitor. It’s often recommended that there are multiple trustees, as this tends to allow for better decision making.
When it comes to appointing a trustee, cost is a factor which should be considered. If you’re choosing a non-professional trustee, such as a friend or family member, then payment is optional. However, if you’re employing the service of a professional, then there is obviously going to be a fee. The upside of professional help is that it can provide peace of mind that the trust is in capable hands, which in turn can help to save time and money in the long-term.
Taxes
Investing within a trust offers specific tax benefits. For example, when gifting assets to another person, capital gains tax can be significantly reduced by utilising a trust. Similarly, trusts can also protect assets from continual charges from inheritance tax. When it comes to income tax, trusts allow the cost to be spread across multiple people, utilising the most beneficial tax allowances available.
Trusts offer benefits when it comes to taxation but the system can also be quite complex. Normally, tax is applied at two separate stages- when the trust receives income and when a payment is made to the beneficiary. However, how and when taxes are applied depends on the type of trust involved and how it’s used.
It can be easy to become overwhelmed with the logistics surrounding trust investment and management. Fortunately, the experts at Salhan Accountants have a wealth of experience in this area. Not only can they provide invaluable advice on the options available to you, they can also help with setting up the trust itself. Investing in expert solutions provides peace of mind and ensures that you and your assets are protected. Click here to find out more
